The headwinds of slowing global growth are beginning to buffet India’s trade on all sides.

Merchandise exports fell a massive 22.0% on-year in June to $32.9 billion, marking the fifth straight month of decline.

While the large decline could be attributed partly to a high base effect, as exports had unexpectedly shot up in the same month last year, exports declined sequentially and on a seasonally-adjusted basis too.

Moreover, unlike in recent months when the fall in oil exports (one of India’s top export commodities) was a major cause for decline in overall exports, June also saw a sharper contraction in core (non-oil, non gold¹) exports.

The decline in India’s exports mirrors a similar slowdown from the larger Asian region, suggesting reduced demand for goods from advanced economies where the focus has shifted to services consumption.

For the April-June quarter, India’s merchandise exports fell 15.1% on-year, compared with an average decline of 2.0% in the previous two quarters.While the decline in commodity prices has played a big role in the fall in dollar value of India’s exports, volumes have declined in many cases too. According to data from the commerce ministry, 40 of 75 commodities witnessed an on-year decline in exported volume during April-May 2023. These include categories such as organic chemicals, base metals etc. That said, volume of petroleum exports rose during April-May 2023 (over same period last year), which means the fall in oil exports (in dollar terms) is purely a price effect.

A second significant development, in what could be an early sign of weakeness setting into domestic demand, is a massive decline in merchandise imports in June. Overall merchandise imports fell 17.5% on-year to $53.1 billion, while core imports dropped 14.5% to $33.3 bilion in June. Investment related imports, which saw robust growth in the past few months, also softened.

In fact, sequentially (in seasonally adjusted terms), imports fell more than exports. With imports declining sharply, merchandise trade deficit marginally narrowed to $20.1 billion in June, from $22.1 billion previous month and the year-ago period.

The third area of concern, at least for now, is the slowdown in India’s services goods exports. In the first two months of the fiscal for which actual data is out, services exports grew 7.6% on average, down from 23.8% for the previous three months.

Since services import growth too has softened, the services trade balance has not been affected much so far. Nevertheless, services trade will remain a crucial monitorable as it has hugely helped keep India’s current account deficit (CAD) in check in the past.

¹ Gold here refers to gems and jewellery